Source: Laurence J. Kotlikoff, Ben Marx, and Pietro Rizza, National Center for Policy Analysis, NCPA Policy Report No. 301, August 2007
From Policy Digest:
Even the wealthy depend upon Social Security for much of their consumption after they quit working, according to a new report from the National Center for Policy Analysis (NCPA).
• Social Security accounts for virtually all of the discretionary consumption of households with preretirement incomes of less than $50,000 a year or $25,000 for singles.
• Social Security accounts for about one-third of all discretionary consumption for the highest-income households — couples earning $500,000 or singles earning $250,000 prior to retirement.
A primary goal of financial planning is to maintain a consistent standard of living during a person’s lifetime. If Social Security were abolished tomorrow, all retirees would experience an immediate reduction in their consumption. If younger workers were notified in advance, they could adjust their saving and spending habits today to avoid abrupt changes in their standard of living upon retirement. Yet only the highest income workers have the ability to adjust so as to completely smooth their consumption across their lifetime. Because low- and middle-income workers are constrained by current obligations they cannot completely adjust.
Source: American Academy of Actuaries, Issue Brief, June 2007
From the press release:
Gender-related differences in the American work culture have resulted in lower Social Security benefits for women, the American Academy of Actuaries Social Insurance Committee said in a new issue brief, “Women and Social Security.” The actuaries cite differences in wage histories, greater probabilities of outliving a spouse and being single in retirement, and the greater likelihood for women to be temporarily out of the workforce, among the differences that cause their benefits to be smaller even though calculated using gender-neutral rules.
The Academy’s issue brief also determines that women, who on average are more likely to have insufficient income in retirement, are in turn more dependent on Social Security. In fact more than 40 percent of females aged 62 or older rely on Social Security for more than 90 percent of their income, as opposed to 28 percent for males aged 62 or older. Additionally poverty rates for single women aged 65 or older are among the highest of any subgroup in the United States.
Source: Christopher Tamborini, Congressional Research Service, Order Code RL34006, May 17, 2007
Over the past few years, there has been intense debate about Social Security reform in the United States. A number of options, ranging from changing the benefit formula to adding individual accounts, has been discussed. The policy debate takes place against the backdrop of an aging population, rising longevity, and relatively low fertility rates, which pose long-range financial challenges to the Social Security system. According to the 2007 Social Security Trustees Report’s intermediate assumptions, the Social Security trust funds are projected to experience cash-flow deficits in 2017 and to become exhausted in 2041.
As policymakers consider how to address Social Security’s financing challenges, efforts of Social Security reform across the world have gained attention. One of the most oft-cited international cases of reform is Chile. Chile initiated sweeping retirement reforms in 1981 that replaced a state-run, pay-as-you-go defined benefit retirement system with a private, mandatory system of individual retirement accounts where benefits are dependent on the account balance. As a pioneer of individual retirement accounts, Chile has become a case study of pension reform around the world. Although Chile’s experience is not directly comparable to the situation in the United States because of large differences between the countries, knowledge of the case may be useful for American policymakers.
Source: Jason Furman, Challenge: The Magazine of Economic Affairs, January-February 2007, Vol. 50 no. 1 (subscription needed)
Is there an opening to seek a compromise on social security with the republicans? This former Clinton administration economist thinks there may well be. It will not be to everyone’s liking, he says, but it may be the best we can hope for.